We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

In Economics, what is a Price System?

By Constance Simmons
Updated Feb 07, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A price system in economics serves the function of regulating the production and consumption of goods by determining their monetary or trade value. There are three different types of these systems in economics: free, mixed and fixed. Each of these is characterized by the amount of control that forces outside of the market have on prices and especially the factors of production, which include land, labor and capital.

All modern societies use price systems. They motivate both consumers and producers to make decisions. For example, in most cases, a consumer will choose the product that is the least expensive, and producers choose to produce only products that will make profit. The system informs both of these decisions without the producer and consumer having to communicate directly.

In a free system, prices are set naturally by supply and demand in the economy with no outside interference. The higher the demand for a product, the more incentive producers have to make it, but producers are also motivated to keep prices down to attract more consumers. This creates a situation in which both consumers and producers are motivated by price.

In free price systems, competition among producers allows for prices to stabilize themselves. These systems create capitalism, which is distinguished as a market in which individuals are allowed to control all the factors of production, with no government intervention. Profits are unlimited in free systems and are the primary motivation for producers.

In a fixed price system, the market is not left to its own devices; prices instead are controlled by forces outside of the economy. Fixed price systems occur in centrally planned economies where the government is in complete control of all of the factors of production. Supply and demand do not determine prices, rather the government planners decide what to produce, how much to produce and how much to charge. Although the government decides what to produce in this economy, it doesn’t change the needs of consumers, and this can result in scarcity of some items and a surplus of others. These systems are most common in countries that have communist or socialist governments.

Fixed and free price systems are both extremes, one having no regulation and the other completely controlled by the government. Most nations cannot exist with a price system that is purely fixed or purely free. A mixed price system is a combination of these extremes and produces an economy with both government regulation and free enterprise. Most modern economies have a price system that falls somewhere between a free and a fixed price system..

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By surfNturf — On Jan 14, 2011

Oasis11-I remember that. Also, we prices are really low like during the Black Friday specials there comes a shortage of those goods as well. Lower prices tend to attract more people to buy.

By oasis11 — On Jan 12, 2011

Latte31-In the United States, we have a capitalist system that allows the market to determine the price that people are willing to pay.

For example, in 2005 when the real estate market was very much in demand prices were soaring and annual property value increases of 20 to 25% in some locales was not unheard of.

The prices went up because people were willing to pay those prices. Now with the flood of foreclosures and excess inventory the downward pressure on the prices of homes has led prices to decline more than 50% from its peak in 2005.

Also, when prices go too high demand does go down and the prices eventually reach equilibrium.

For example, when gas prices in the United States reached a high of over $4.00 per gallon, many consumers bought fuel efficient cars and used public transportation more.

They also took fewer trips and carpooled when going to work. All of these behaviors led to an eventual drop in gasoline prices because demand was tapered off.

By latte31 — On Jan 10, 2011

A one price system is what is found in a communist system where the factors of production are controlled.

An example is in the command economy that China has. In China, the government as well as the amount of production set the price.

Companies are able to make a small profit but it mainly comes from the sheer number of Chinese consuming goods and services.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.